— Michael Bondar Published on Dec 20, 2024, 3:00 PM WSJPRO
Rising demand for sustainability data from investors has created an inviting atmosphere for companies seeking to proactively earn their trust. Why the urgency? From an investor’s point of view, the answer boils down to a single number: $43 trillion.
That’s the projected heft of global economic growth between 2021 and 2070, assuming companies, countries, and other institutions around the world can achieve net-zero emissions. Eager to capitalize on the opportunity, as well as reduce their risk, investors are seeking sustainability data that is consistent, clear, and dependable.
Investors seem eager to integrate financially relevant sustainability criteria into their decision-making. Over the past five years, according to a study conducted jointly by Deloitte Transactions and Business Analytics LLP (DTBA) and The Fletcher School at Tufts University, the proportion of investors with sustainability policies in place has grown from 20% to 79% in just five years. And just 1% of respondents say their organization does not have plans to develop sustainable investment policies in the future. The survey—based on the responses of 1,000+ investors, including asset owners, asset managers, and investment advisers in North America, Europe, and Asia— was supplemented by interviews with 10 sustainability investors.
The research also found that investors believe that regulations will bring consistency and standardization to corporate sustainability data and disclosures. But such regulations have yet to be fully implemented, adopted, and standardized. For now, investors need to cope with ongoing issues related to sustainability data, including unclear corporate strategies, incomparable data from rating agencies, and frequent lack of measurable outcomes from corporate reports.
In the meantime, companies have an opportunity to bolster their capabilities and engage investors to earn their trust. Those remaining on the sidelines risk playing catch-up later.
Consistency Counts
Using sustainability data to earn investor trust doesn’t depend solely on demonstrating integrity. Consistency counts.
In fact, companies that can dependably provide such disclosures—even before they’re required—may be seen favorably by both investors and customers. Moreover, businesses that reliably deliver on their sustainability commitments and transparently disclose progress can build trust equity with investors. In doing so, they may gain a sizable competitive advantage, particularly since many investors still see significant gaps in reliability, clarity, and consistency of climate data.
How investors see sustainability data as falling short
The CFO’s role in reporting reliable ESG data extends beyond keeping investors informed. C-suite members and directors also need to be updated on whether the organization is on track to meet sustainability targets.
Further, those goals should be shared across the enterprise, ensuring that every participant understands the purpose behind the data they’re collecting and passing up the chain. As CFOs, finance teams, and organizations determine how to meet such demands, they will likely progress through stages of maturity and action.
For finance leaders, taking the following steps may assist them in attaining meaningful—and measurable—progress:
1. Establish goals, set commitments, and construct a timeline. Even if the organization feels minimal regulatory pressure, now is the time to address issues with sustainability data. In addition, companies need to figure out where to focus their efforts. How can the business be most effective in reducing its carbon footprint? The United Nations’ Sustainable Development Goals, adopted in 2015, include 17 global objectives that may help CFOs and others choose where the organization can have the most impact.1
2. Create mechanisms for tracking progress on sustainability targets. To ensure sustainability efforts don’t fall by the wayside, CFOs and others should consider establishing regular meetings. To effectively identify barriers and gaps—are there pockets of the business that overlook leadership’s mandate?—it may be necessary to rigorously analyze the structures and leaders in place. They might also establish the most effective management systems for collecting, maintaining, and reporting the data. Stakeholders should be regularly updated.
3. Have the data independently verified. Having both a third-party and internal audit review sustainability data can convey a simple but powerful message to prospective investors: the company doesn’t treat sustainability as a check-the-box exercise and senior management aims to provide comprehensive and transparent disclosures. Investors likely have internal models for verifying this kind of data—part of their effort to catch any attempts at greenwashing or questionable claims about eco friendliness. However, investors’ internal models may not be fully aligned with the company’s sustainability efforts, overlooking some areas and improperly valuing others. Presenting carefully considered, analyzed, and verified data makes it simpler for investors to decide on putting their dollars into it.
4. Provide clear, transparent, and consistent reporting to stakeholders. Beyond communicating sustainability goals, it’s essential to be transparent to all stakeholders (including the media) about the steps the company takes to meet its climate goals. The time to take this on is now, when trust is key, and expectations are heightened—yet before additional regulations roll in. Voluntary action can speak volumes about an organization’s commitment to sustainability.
Climate Business
The payoff for trustworthy sustainability data extends beyond investors. CFOs can also benefit from the upgraded data, which they can use to analyze and communicate the potential impact of climate scenarios on business risk and performance.
In addition, the data captured for sustainability reporting can drive, among other things, margin improvement and product innovation. A recent study by Morgan Stanley Capital International (MSCI) found a correlation between a company’s MSCI rating and its cost of capital: As ESG scores rose, the cost of capital fell.2 The research, which used a decade’s worth of sustainability data (August 2015 through May 2024) for more than 400 global companies, suggests that a company that prioritizes sustainability may be seen as likely to apply similar principles to other areas, such as in how it manages its workforce or its commitment to data security.
Given what’s at stake, it’s not surprising that many corporations have already started developing sophisticated sustainability reporting capabilities. Sales of software that helps track and report sustainability metrics will likely top $1 billion this year.iii And interest in the software—like investor interest in sustainability—is expected to keep on growing. One report
estimates sales of ESG reporting applications will rise between 19% and 30% annually over the next five years five years.4
Editor’s note: This is the second article in a two-part series. To read the first article, click here.
— Michael Bondar, enterprise trust leader, principal, Risk & Financial Advisory, Deloitte Transactions and Business Analytics LLP; and James Cascone, consumer leader, Sustainability, Climate & Equity, partner, Risk & Financial Advisory, Deloitte & Touche LLP
1. “Unanimously Adopting Historic Sustainable Development Goals, General Assembly Shapes Global Outlook for Prosperity, Peace,” U.N., Sept. 25, 2015.
2. “MSCI ESG Ratings and Cost of Capital,” MSCI, July 22, 2024.
3. “Regulations take effect: ESG reporting software sales are expected to soar in 2024,” Deloitte Center for Technology, Media & Telecommunications, Nov. 23, 2023.
4. “Market Size And Forecast: ESG Reporting Software Solutions 2021-2027 (Global),” Verdantix, 2023.
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